Scott E. Mollen

Development—Developer Claimed Town Unlawfully Blocked Housing Project—Land Use Claims Were Unripe—Lack of Standing To Assert Claims Under Fair Housing Act and 5^th and 14^th Amendments—Town's Non-Vote and Its Counsel's Unsubstantiated Statements Were Not a "Final Decision"—Pending Article 78 Proceeding—Abstention Doctrines Inapplicable—Developer Alleged $10 Million Loss

A plaintiff developer commenced an action against a town, it's town board, town planning board and numerous public officials. The developer asserted claims based on the Fair Housing Act, 42 U.S.C. §3601 et seq. (FHA), as well as 42 U.S.C. §§1981, 1982, 1983, and 2000d, the 5^th and 14^th Amendments of the U.S. Constitution and the NYS Human Rights Law (NYSHRL). The developer claimed that the defendants acted unlawfully by "disallowing, delaying,…and otherwise interfering with plaintiff's attempt to construct a housing development" (development). The defendants had moved to dismiss the complaint pursuant to FRCP 12(b)(1) for lack of subject matter jurisdiction and FRCP 12(b)(6) for failure to state a claim upon which relief can be granted. The court granted the motion to dismiss and all claims were dismissed.

In 2006, the town board granted the developer's application to rezone its property from a business zone to a residential zone. The rezoning was conditioned on restrictive covenants which required that the developer build only condominiums, and the developer connect to an off-site sanitary treatment plant (STP). The subject residential zone generally allowed rental properties as a matter of right. The developer alleged that connection to the STP became "impossible," based on the town's and local school district's "refusal to grant a required easement and the town's subsequent approval of a project that utilized the remaining compacity" of the only viable off-site STP. In 2014, the developer filed an application with the town board to eliminate the covenants (application).

The developer's application was referred to the planning board. The planning board scheduled a hearing in November 2014. At the meeting, a "vocal and hostile crowd" allegedly made "racist comments such as 'we are not talking about what's 'on the outside, we're talking about what might be on the inside.'" The planning board did not vote on the application until approximately 18 months after the initial public hearing. That delay was "out of sync with the normal procedure."

In May 2016, the planning department staff advised the planning board that rental apartments were appropriate and concerns as to "traffic impacts, wetlands, and diminution of property values" had all been "satisfactorily addressed." The planning board failed to approve the application. The planning board vice chairman recused himself and the vote was a 3-3 tie. The vote was deemed a "non-action." The developer thereafter reduced its proposal from 64 rental units to 59 units, "with half of those being age-restricted."

The town board held a meeting in November 2016. The hearing was adjourned, allegedly because "one of the applicant's most outspoken opponents…was out of town." On Nov. 17, 2016, the town board placed the application on the agenda. The planning department staff and the developer supported the application. The town supervisor moved to approve the application. No town board member seconded the motion and no vote was held. The developer claimed that the town had "caved into a hostile opposition," which was allegedly so hostile that the town supervisor "had to threaten to suspend the meeting." Some opponents had allegedly expressed racial concerns as to "drug activity, crime, prostitution, murder…. It's going to be the murder capital of Suffolk" and allegedly threatened political retaliation against town board members if they approved the application. On the same night as the developer's hearing, the town board approved another developer's application to build rental units instead of condominium units. The other developer's property was allegedly located in a "predominately minority" area.

Following the aforementioned town board meeting, the developer's attorney allegedly spoke with the town attorney. The town attorney allegedly stated that the town was "treating the failed motion to approve as a denial of the (…) application, and that no further proceeding before the town board, planning board, or any other town agency would be held." The developer's attorney sent the town attorney a letter summarizing that conversation and requesting that the town attorney respond if he "disputed that he had made such statements." The town attorney had not responded.

In December 2016, the developer commenced an Art. 78 proceeding against the defendants in the state court. The Art. 78 petition asked the court to declare that the town's imposed covenants are "illegal and unenforceable," to order the town to review and approve the application and site plan and to direct the town to issue the necessary building permits. The developer also asserted a claim for a "temporary taking." The related Art. 78 proceeding was scheduled for trial in November 2019. The developer had commenced the subject action in December 2017.

The court found that the developer lacked standing to bring its land use claims. The town board never voted on the application at the November 2016 meeting and "neither town board, the planning board, nor any other town agency had taken any action on the (…) application in the months since."

The court had to determine whether the alleged conversation between the developer's attorney and the town's attorney, considered with the town attorney's failure to respond to the developer's attorney's letter memorializing the alleged conversation, "constituted a final decision for purposes of standing and ripeness at the motion to dismiss stage."

The court found that the developer lacked a "final, definitive position" from the municipal entity. Rather, (developer) has a non-vote and an alleged statement by the town attorney. The court noted the absence of "binding precedent suggesting that this utterance, such as it may be, constitutes a final decision" for purposes of standing and ripeness at the motion to dismiss stage. The court held that the developer did not meet its burden at the motion to dismiss stage and thus, the developer's "land-use base claims are not ripe and (developer) has not made out the related first element of the standing test."

Accordingly, the court granted the motion to dismiss pursuant to FRCP 12(b)(1) with respect to the developer's claims based on 42 U.S.C. §1983 and the Equal Protection Clause of the 14^th Amendment; the alleged violations of substantive due process under the 14^th Amendment and the alleged violations of the taking's clause under the 5^th and 14^th Amendments.

With respect to standing in the FHA context, the court explained that there were no "prudential barriers to a plaintiff's standing under the FHA, and, to maintain suit a plaintiff is required only to demonstrate an 'injury in fact within the meaning of Article III' by showing that it suffered 'distinct and palpable injuries that are fairly traceable to (the defendants') actions." The court noted that the "Second Circuit has not explicitly decided whether the final decision requirement applies to FHA claims." However, the "consensus among lower courts in the Second Circuit and other Circuits is that 'as-applied challenged under the FHA are not ripe unless the plaintiff has submitted at least one formal application for relief' and the responsible government entity has made a decision regarding the plaintiff's request." The court concluded that the developer lacked standing to bring its FHA claim.

The plaintiff had argued that it had been injured based on a reduction in the number of rental units, a deprivation of its right to develop housing for minorities in a "highly segregated" town, objections to its application were "motivated by animus toward minorities" and its application had been rejected because its property is located in a "majority-white area." The developer cited $10 million in economic losses arising from "professional expenses and fees for the application, property taxes, and other carrying costs." The defendants countered that the town had "not made an ultimate determination on (the) application, so there can be no injury."

Citing judicial precedent, the court held that the developer lacked standing to bring its FHA claim since there was "no final decision and accordingly no injury." The court stated that although the developer cited "lost up-front expenditures, its claim is not ripe for review because defendants had not voted on (the) application" to amend the…covenants. The court also noted the pending Art. 78 proceeding "in state court to compel defendants to grant (the) application."

The court rejected the developer's "unsupported argument that defendants' non-vote constitutes a denial and that defendants' counsel's unsubstantiated statements and failure to respond to plaintiff's counsel's letter is confirmation of such denial." Thus, the court granted the motion to dismiss the FHA claim for lack of standing.

However, the court denied the motion to dismiss the developer's §§1981 and 1982 claims for lack of standing. The defendants had addressed the final decision requirement as it applied to land-use and FHA claims, but had not mentioned "whether a final decision is required to have standing to bring a §1981 or a §1982 claim" and they cited no persuasive authority in support of their argument. The defendants also argued that the plaintiff lacked standing to bring the §§1981 and 1982 claims since the "interests advanced by plaintiff are unrelated to the purpose implicit in…§§1981 and 1982." The court rejected that argument.

The court explained that under §1981, a plaintiff "does not have to be a member of a racial minority to bring a claim; rather a non-minority plaintiff can allege personal injury stemming from a defendant's discriminatory conduct against a racial minority." Although the defendants had made other arguments in support of their motion to dismiss the §1981 and §1982 claims, such arguments were relevant to a FRCP 12(b)(6) motion and not the Rule 12(b)(1) motion.

Thus, the court denied the motion to dismiss the §1981 and §1982 claims, without prejudice. The defendants were directed to file a "renewed motion to dismiss on the limited question on whether a final decision is required for standing and ripeness for §§1981 and 1982 claims, and, if not, whether there are any other reasons that the court (lacks) subject matter jurisdiction over such claims." The court gave the defendants an opportunity to renew their 12(b)(6) motion when they file their renewed Rule 12(b)(1) motion.

The court denied the defendants' motion to dismiss the developer's NYSHRL claim for lack of standing, without prejudice to renew. The court acknowledged that the "standards under the NYSHRL…parallel those applicable under the (FHA)." However, the court held that such fact is not a basis for dismissal and the court was not "required to make the Parties' arguments for them."

The defendants also argued that if the plaintiff has standing to bring any of its claims, the court should abstain from exercising jurisdiction based on the Younger, Colorado River and Wilton abstention doctrines. The court rejected the abstention arguments.

Thus, the court granted the motion to dismiss pursuant to FRCP 12(b)(1) as to alleged violations of the FHA, alleged violations of 42 U.S.C. §1983 and the Equal Protection Clause of the Fourteenth Amendment, for violations of substantive due process under the Fourteenth Amendment; and for violations of the takings clause of the Fifth and Fourteenth Amendments. The developer's FRCP 12(b)(1) motion was denied at this time as to the alleged violations of §1981, §1982, and for alleged violations of the NYSHRL. The motion to dismiss pursuant to FRCP 12(b)(6) was denied at this time, since the court may or may not have subject matter jurisdiction to consider those claims on the merits. The defendants were directed to file a renewed motion to dismiss pursuant to FRCP 12(b)(1), limited to the question on whether a final decision is required to establish standing and ripeness for §1981, §1982 and NYSHRL claims. The court gave the defendants the opportunity to "renew their prior motion to dismiss pursuant to FCRP 12(b)(6)."

Comment: This decision addresses, inter alia, the interesting issue of whether an unanswered letter purporting to memorialize a conversation with a public agency's counsel is sufficient to establish that a public agency has taken "final action" with respect to a land use application. There are times when an agency or other public entity (agency) will not confirm that its action constitutes a "final action." The agency may either not respond to a developer's request for such confirmation or say that the developer must reach its own conclusion. If a developer believes that "finality" is unclear, a developer may commence an administrative appeal, if such procedure is available, or commence an Art. 78 proceeding. In most cases, knowledgeable land use counsel will be able to advise whether a government action constitutes a "final determination."

Generally, courts will review the record and applicable laws and regulations and make a determination as to whether the agency's action was "final." On rare occasions, a public agency may disavow the authority of its counsel to convey an opinion, and/or the accuracy of its own counsel's position. Such situation may arise when, e.g., the composition of the public entity has changed, based on a recent election. A new administration may try to block a project that was approved by a prior administration.

Village Green at Sayville LLC v. Town of Islip, U.S. District Court, E.D.N.Y., Case No. 2:17-CV-7391, decided September 27, 2019, Hurley, J.

Commercial Landlord-Tenant—Tenant Granted Summary Judgment on Breach of Contract Claim—Landlord Not Allowed To Collect Additional Rent Based on Taxes Forgiven by Taxing Authorities (Based on Abatements or Exemptions)

This decision involves a commercial lease escalation clause, which provided that in addition to the base rent, in any tax year, the tenant is obligated to "pay a set percentage of the amount, if any, by which (landlord's) real estate taxes for that year exceed (landlord's) real estate taxes for the 'base tax year'—the first fiscal year of the lease." The plaintiff commercial tenant alleged that for several fiscal years the landlord "inaccurately calculated its tax escalations by failing to include abatements and exemptions, and that, as a result, plaintiff has been overcharged in additional rent for each of those fiscal years." The tenant had moved for summary judgment on its breach of contract claim, for a declaratory judgment and to dismiss the landlord's affirmative defenses. The landlord argued that the tenant was not entitled to the abatement or exemptions and cross-moved for summary judgment.

The tenant cited lease language that provided that "if taxes payable for any tax year or any part there of shall exceed the base taxes, tenant shall pay to landlord as additional charges for the premises for such tax year an amount (herein called 'tax payment') equal to tenant's tax percentage of the amount by which the taxes for such tax year are greater than the base taxes." The plaintiff submitted to the court New York City Dept. of Finance Co-op tax benefits statement for defendant for the subject years and real estate tax escalations which the plaintiff had received from the landlord.

The landlord argued that the tenant was attempting to "claim advantage of tax relief that only the individual homeowners and shareholders, not tenants, qualify for."

The landlord noted that the "tax relief from the abatements and exemptions pass through the co-op to the qualifying homeowners and shareholders."

The landlord relied upon the Barnan Assoc. LLC v. 196 Owners Corp. case, 14 N.Y.3d 780 2010. In Barnan, the New York Court of Appeals ruled in favor of the landlord, holding that the "terms of the lease determined whether the plaintiff was entitled to deduct the relevant tax abatements and exemptions from its tax rents, and the tax escalation clause…unambiguously stated that the base assessed valuation would be made without regard or giving effect to any abatement or exemption…." In contrast, the subject lease did not mention abatements or exemptions except to state that "landlord represents that the building is not presently receiving any tax abatement or exemption." Such representation was "not current," since the subject building is at this point receiving and has been receiving "abatements and exemptions."

The landlord further argued that the tenant was not entitled to the requested relief and the landlord "would not be receiving a windfall because the tax relief passed through to qualifying shareholders." The court found that such argument was rejected by Appellate Division, First Department, in Ran First Assocs. v. 363 E. 76 Street Co-op, 297 A.D.2d 506 (2002)." Ran First held that "though the benefits of the abatements to the landlord netted zero, the opposite is true for the landlord's collection of rent based on taxes that were not paid by landlord." Ran First observed that, "[t]o permit landlord to collect additional rent based on taxes forgiven by the taxing authorities, and therefore not payable by either the landlord or the shareholders, would allow the landlord to reap a windfall not envisioned by, or contradictory to, the parties' agreement…."

Since the subject tax escalation provision did not refer to tax exemptions or abatements, the court stated that "calculating additional rent to be charged to plaintiff under the tax escalation provision, as written, does not depend on whether a specific tenant is entitled to benefit from a particular exemption or abatement, as defendant suggests…." The court held that "taxes payable, in the absence of contractual language to the contract, means taxes paid or ultimately required to be paid. The gross taxes charged to defendant reflect only a provisional amount which is later decreased by the tax exemptions and abatements defendant's building receives." Additionally, the court held that the landlord's affirmative defenses were "boilerplate and non-substantive" and lacked the "necessary specificity required."

Accordingly, the court denied that landlord's cross motion for summary judgment and granted the tenant's motion for summary judgment for breach of contract and its motion for declaratory judgment declaring that the "taxes payable," for purposes of the subject lease, "must be calculated net of any and all applicable real estate tax abatements and exemptions."

JJ 201 LLC v. 201 E. 62nd Apt. Corp., Supreme Court, New York Co., Case No. 652214/2017, decided October 7, 2019, Reed, J.

Scott E. Mollen is a partner at Herrick, Feinstein.